KG basin, Andhra Pradesh: Mukesh Ambani's Reliance Industries has finally broken its silence on the gas dispute between the billionaire brothers.
In an exclusive interview to NDTV from the Krishna Godavari basin, PMS Prasad, the president of Reliance Industries, said that a world class project was being undermined by people who don't have any knowledge of executing such projects.
NDTV's Shweta Rajpal Kohli caught up with PMS Prasad who said that the world was patting RIL on the back for having completed the project in a short span. He attributed political motives to the charges against RIL.
NDTV: There has been a lot of controversy around Reliance's KG basin project?
Prasad: We think we've done our job in bringing this project on stream in a very short time and at a very competitive cost. The world is patting us on the back and saying--hey guys, you've done a great job, but I am really pained to see the kind of controversies that are being raised saying that this project is being built at a very high cost. They are attributing all kinds of motives, saying that we are not producing gas and creating artificial shortages, it really hurts me to hear all this. I know people want to say all this for political reasons, but why undermine a great project for the country, a project that the E&P and the world is proud of.
NDTV: Let us talk about each of the things you've mentioned.. First the cost of the project that runs into thousands of crores. Why do you need to spend 45,000 crore to bring gas out of here?
Prasad: Two things, we've not spent Rs 45,000 crore--that will be the cost that will be ultimately spent, when the project runs through its life. This project as per the development plan has a life of 11-12 years. What we have spent till now is around Rs 35,000 crore.
NDTV: But there has been a huge spurt in the amount you've had to spend and that's the other big debate. The fact you were just talking of 2 billion dollars initially and a figure that was increased four-fold even though the output from this field is only being doubled?
Prasad: Number of things here--this 2.4 billion dollar figure was the estimate we gave based on 2003 prices and at that time to be very candid, we neither understood the scale, magnitude and the complexity. Two, the prices from 2003 have gone up three to four times in the case of drilling rigs and services and may be 60-100 per cent in the case of commodities like steel and the fabricated equipment and services. Don't forget the fact that we found more resources and we've also scaled up the production.
NDTV: So how does this project compare with other projects? How much are you spending in terms of per barrel of oil equivalent and how does it compare with some of the best projects worldwide?
Prasad: See, when you compare the deepwater projects, you have to compare the comparables. And you compare this with any other project with similar magnitude and water depth. Our development cost is about 5 dollar per barrel equivalent, if you look at similar costs anywhere else, they vary from 6 to 8 to 9 dollars. That's why I feel proud that all the time that we worked on this has engineered the project well, they have built it well, purchased all materials at very competitive costs and the proof of the pudding is in the eating. You look at how smoothly this project started compared to many other projects that had a lot of teething problems and hiccups. This has been one of the smoothest startups that the world has seen in the deepwater world and if you look at the finding and development, it is the lowest finding and development cost. I do know all kinds of allegations are being made in the media but if you look at people who understand and talk to them, I mean people from the industry, who have executed deepwater projects, bring them and ask them if this is a competitive cost or not. I can guarantee you they will say it is a very competitive cost!
I can't stop anybody who doesn't understand the project execution of this magnitude or those who don't have knowledge of the upstream industry and the difficulties we face in executing mega projects. They can say anything. But I am proud and my team is proud and the whole exploration and production industry in the world acknowledges that we have done a good job. That's what makes my team and me happy that yes we have delivered something that Reliance, the country and the world is proud of.
NDTV: Even the petroleum ministry has been accused for approving this cost that shot up from 2 billion dollars to 8 billion dollars?
Prasad: The ministry has experts who understand the complexity. They know how the markets have moved against us in terms of cost. They understand the complexities in terms of Bay of Bengal, in terms of weather window and other things. Let the experts and not the self-appointed messiahs who call themselves experts, but the real experts from the upstream companies like the Chevrons, Exxons and the BPs, let them come and look at it. They have the knowledge of this project because they have seen. Let them say this project was gold-plated and the costs were higher. That is the assessment that I respect. Otherwise who are these people what is their competency to say what they are saying. Have they built any mega projects? Do they know the upstream industry? Have they done a project in the deepwater space? Nothing! So why should I respect or bother about what they are saying.
NDTV: The other big issue around the production of gas from this KG D6 field is that how much gas are you actually producing and why are you not scaling it up to your peak production?
Prasad: Today we have the capability to produce 60 million if not a bit more. The facilities can produce up to 60 or a bit more.
NDTV: So how much are you producing right now, a little over 30 million units?
Prasad: Yeah, say about 36. So you will say if you can produce more than 60 and the country needs gas, you'll say why aren't you producing more!
NDTV: Absolutely and that's what is being questioned all this while?
Prasad: I understand and let me explain to you why. You see I can't produce gas and store it. Gas has to be produced and immediately transported to consumers and unless consumers are consuming, I can't be producing. My storage capacity is only in the pipelines, so I need to have more consumers. Today the government has allocated little over 40 million units, out of which some of the consumers are not drawing gas. For instance NTPC has not signed the contract. Dabhol has signed but they will start taking gas from next month. Similarly another customer-Essar Power will start taking in the next coming months or weeks.
NDTV: But if you can scale it up to 80 million, why not scale it up right away?
Prasad: We are working hard to do that. What's stopping us from going to 80 million is that we still need to finish the field installation. From April 15 till today its almost four plus months. Our productivity has not been good, because the weather has not been kind to us, but you'll see our wells later in the day. The vessels are still there and the moment there is a let up in the weather they would go and do some piece of the work. Our timelines are towards the end of the year but we are trying as fast as we can. But there is a difference between producing and transporting to the consumers. I also need to get a list beyond the 40 million from the government.
NDTV: So when will you scale up to 80 million?
Prasad: Our target is December but we think we will hit the target even earlier.
NDTV: What about scaling up beyond 80 million. Is that an option given that you have many discoveries in the KG basin?
Prasad: We are not thinking beyond 80 million at this point in time. For two reasons--one, we do have some discoveries and they are in different stages. Some we are appraising to see if they are commercial to be developed and two, some of the development plans that we have submitted we are trying to refine it and get government approvals to go ahead. Also we need to look at what price of gas would be economical because all the discoveries may not be as prolific as D1, D3 and anyways in the current context in terms of the comments, media pressure, there is no incentive for us to increase production because we feel we have put in so much investment. In an uncertain environment, no one wants to take any more risks.
NDTV: So has the controversy forced you to push back some of the plans you had made for the Krishna Godavari basin?
Prasad: I wouldn't say that but we are just being more cautious and want to make sure that now you look at everything from a risk perspective. Earlier we were looking that we have a resource here, the country needs gas and we need to develop it in a cost efficient and time efficient manner. That focus probably or that perspective has changed!
NDTV: There has been a lot of talk about pricing of the gas that is being pumped out of here from the KG basin. The government has arrived at a price of 4.2 dollars per unit and that's been extremely controversial. I can see that smile on your face. A lot of people feel it's not a fair price. Why do you say it's competitive?
Prasad: As we are standing in the KG basin, there is a neighbouring Cairn operated Ravva basin and they are selling gas today at 4.2 dollars per MBTU and recently I believe they have had a price discovery where some customer has bid 6.5 dollars. This is on the east coast and look at the one on the west coast. You have Panna Mukta Tapti at 5.7 and other production, which is being sold at 5 or higher and the gas prices are market based. Why believe 4 dollars is a competitive price for everybody, even comparing it with contract LNG or some of the imported spot LNG it is a very competitive price.
I can say anything! Some people may want it free. But is it a responsible way of dealing with it? This is the patrimony of the country. You need to leave it to the next generation. That is what is expected. Why waste it, because it you don't value it properly you don't utilize it in the right way and you need to price it fair and I believe 4 dollars is a fair price.
NDTV: But contracts were signed at a much lower price earlier. Why not honour them now?
Prasad: Yes it is true, the company has signed the contracts or made offers but they were all subject to government approvals. The government-based price on market discovery is 4.2 dollars per unit and I think they have made a good and wise decision that will get a decent market price and also reasonable returns, both to the government and contractors who are partners.
NDTV: But the formula is linked to crude prices. Last year crude shot up to 147 dollar a barrel and has now come down. Would it not be fair to reassess if 4 dollars is still a fair price?
Prasad: This price was discovered when crude was at 60 dollar and it is 60-65 dollars even today. So what's the difference? When the crude price went up, the price did not increase. If crude price goes back to 25 dollar, the price will be 2.5 dollar. So, it's capped at 60 dollar. But the formula allows downward revision if prices fall to 25 dollar.